Silver Prices Forecast: Stronger Dollar, Fed Ambiguity Capping Gains

Silver Dips Amid Dollar Strength and Fed Speculation

Silver prices is edging lower on Tuesday, influenced by a strengthening U.S. dollar and lingering uncertainty surrounding Federal Reserve policies. As the dollar gained 0.2% against its counterparts, silver lost some appeal among investors, awaiting further insights from Fed officials regarding potential interest rate adjustments.

At 13:04 GMT, XAG/USD is trading $27.40, down $0.05 or -0.18%.

The U.S. dollar index, measuring the currency against major peers, including the yen and euro, exhibited a slight uptick, reaching 105.23, despite recent interventions by Japanese authorities to counteract its rise. While the index has seen a 4% increase this year, last week witnessed a nearly 1% decline following the Fed’s decision to abstain from further rate hikes and indications of softness in the U.S. labor market.

Kirstine Kundby-Nielsen, FX analyst at Danske Bank, maintains a cautiously optimistic stance on the U.S. macroeconomic landscape, foreseeing ongoing dollar support throughout the year. This could cap silver prices.

Fed Policy and Treasury Yields Influence Market Sentiment

Investor attention remains fixated on Federal Reserve monetary policy, reflected in the movement of U.S. Treasury yields. On Tuesday, the 10-year Treasury yield experienced a 3-basis point decline, settling at 4.459%, while the 2-year yield also saw a slight downtick.

Uncertainty looms over the potential timing and extent of interest rate adjustments, with recent economic data and statements from Fed officials providing limited clarity. Richmond Federal Reserve President Tom Barkin emphasized the importance of awaiting further signs of inflation easing before considering rate cuts, echoing the sentiment expressed post the Fed’s latest meeting.

The weaker-than-anticipated April jobs report spurred speculations of rate cuts, with nonfarm payrolls falling short of expectations. However, Barkin’s remarks underscore the Fed’s cautious approach, preferring a more confident stance on inflation moderation before policy adjustments.

Short-Term Forecast

Silver, having peaked at $29.80 on April 12, experienced a pullback on Tuesday amid dollar strength and anticipation of Fed comments. Central bank acquisitions and Chinese retail investor demand fueled the bullish trend, bolstered by geopolitical tensions.As investors await commentary from Fed officials, including Fed Bank of Minneapolis President Neel Kashkari, market sentiment remains cautious. Richmond Fed President Thomas Barkin’s affirmation of current interest rate levels to temper economic growth adds to the anticipation surrounding potential rate adjustments.

Fed funds futures traders anticipate a likelihood surpassing 67% for rate cuts starting in September, per the CME’s FedWatch Tool, implying possible market shifts awaiting Fed policy updates.

Technical Analysis

Silver is struggling to sustain yesterday’s upside momentum, which put the market in a position to test the short-term top at $27.73. A trade through this level will change the minor trend to up. This move could trigger another acceleration to the upside.

On the downside, minor support comes in at $26.02, followed by the uptrending 50-day moving average at $25.96. The latter is controlling the intermediate trend and is a potential trigger point for an acceleration to the downside.